House Democrats voted down key provisions of the Hawai‘i Republicans’ agenda yesterday, rejecting proposals to eliminate the 4 percent excise tax on groceries, medical services and residential rents.
The House floor votes fell strictly along partisan lines, with House Democrats arguing this is the wrong time to be whacking away at the state’s largest single source of revenue. The excise tax is imposed on almost all goods and services sold in Hawai‘i, and raises about $1.5 billion for the state general treasury each year.
Republicans are free to raise their excise tax proposals again later in the session, but yesterday’s votes strongly suggest the Democrats aren’t about to go along with the plan.
A bill to impose a new "luxury tax" on goods worth more than $20,000 also was quietly sidelined by House Democrats yesterday. The action suggests the ruling House Democrats aren’t ready to raise taxes this year, either.
State tax officials estimate the Republicans’ plan to eliminate the excise tax on groceries while continuing the tax on restaurant food would cost the state about $100 million a year in lost tax collections.
Eliminating the tax on medical services would cost the state an estimated $69 million a year, and ending the tax on residential rents would cost the state about $67 million.
Rep. Charles Djou, R-47th (Kahalu‘u, Kane‘ohe), said the tax cuts would act as a "financial vaccine" and protect Hawai‘i from a new recession at a time when the Mainland economy may be stumbling.
He argued the tax cuts would help to stimulate the economy by returning money to working people, who presumably will spend it.
But House Human Services and Housing Chairman Mike Kahikina said the tax cuts would force lawmakers to cut government services or use some other method of raising money.
Kahikina, D-43rd (Barbers Point, Wai‘anae, Ma‘ili), said the Republicans didn’t offer a detailed plan for making up the lost money, and "we are elected to balance the budget."
Kahikina and other Democrats also wondered whether consumers would benefit from the tax cuts. "How many landlords would pass the savings on to their renters?" Kahikina asked. "I doubt most would."
The idea of an excise tax cut on rent and food is popular among Republicans and Democrats, with 41 of 51 House members endorsing the idea in an Advertiser survey last December.
However, lawmakers fear this is the wrong time to cut taxes. The state may have to find money to pay some sizeable bills this year, including hundreds of millions of dollars for new mental health services for schoolchildren, and raises for unionized public employees.
The luxury tax proposal was floated by House Rep. Lei Ahu Isa, D-27th (Pu‘unui, ‘žlewa, Nu‘uanu), and would have imposed a 5 percent tax on expensive items such as cars and jewelry. The excise tax on other goods and services would remain at 4 percent.
The same bill included a proposal to end the excise tax on groceries for senior citizens who are 65 years old or older. The measure was sent back to the House Economic Development and Business Concerns Committee after a technical flaw was discovered in the measure, Ahu Isa said.
